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Posts Tagged: Internal Revenue Service

Last year, KrebsOnSecurity warned that the Internal Revenue Service‘s (IRS) solution for helping victims of tax refund fraud avoid being victimized two years in a row was vulnerable to compromise by identity thieves. According to a story shared by one reader, the crooks are well aware of this security weakness and are using it to revisit tax refund fraud on at least some victims two years running — despite the IRS’s added ID theft protections.

Tax refund fraud affects hundreds of thousands — if not millions — of U.S. citizens annually. It starts when crooks submit your personal data to the IRS and claim a refund in your name, but have the money sent to an account or address you don’t control.

Victims usually first learn of the crime after having their returns rejected because scammers beat them to it. Even those who are not required to file a return can be victims of refund fraud, as can those who are not actually due a refund from the IRS.

The IRS’s preferred method of protecting tax refund victims from getting hit two years in a row — the Identity Protection (IP) PIN — has already been mailed to some 2.7 million tax ID theft victims. The six-digit PIN must be supplied on the following year’s tax application before the IRS will accept the return as valid.

As I’ve noted in several stories here, the trouble with this approach is that the IRS allows IP PIN recipients to retrieve their PIN via the agency’s Web site, after supplying the answers to four easy-to-guess questions from consumer credit bureau Equifax. These so-called knowledge-based authentication (KBA) or “out-of-wallet” questions focus on things such as previous address, loan amounts and dates and can be successfully enumerated with random guessing. In many cases, the answers can be found by consulting free online services, such as Zillow and Facebook.

Becky Wittrock, a certified public accountant (CPA) from Sioux Falls, S.D., said she received an IP PIN in 2014 after crooks tried to impersonate her to the IRS.

Wittrock said she found out her IP PIN had been compromised by thieves this year after she tried to file her tax return on Feb. 25, 2016. Turns out, the crooks beat her to the punch by more than three weeks, filing a large refund request with the IRS on Feb. 2, 2016.

“So, last year I was devastated by this,” Wittrock said, “But this year I’m just pissed.”

Wittrock said she called the toll-free number for the IRS that was printed on the identity theft literature she received from the year before.

“I tried to e-file this weekend and the return was rejected,” Wittrock said. “I received the PIN since I had IRS fraud on my 2014 return. I called the IRS this morning and they stated that the fraudulent use of IP PINs is a big problem for them this year.”

Wittrock said that to verify herself to the IRS representative, she had to regurgitate a litany of static data points about herself, such as her name, address, Social Security number, birthday, how she filed the previous year (married/single/etc), whether she claimed any dependents and if so how many.

“The guy said, ‘Yes, I do see a return was filed under your name on Feb. 2, and that there was the correct IP PIN supplied’,” Wittrock recalled. “I asked him how can that be, and he said, ‘You’re not the first, we’ve had many cases of that this year.'”

According to Wittrock, the IRS representative shared that the agency wouldn’t be relying on IP PINs for long.

“He said, ‘We won’t be using the six digit PIN next year. We’re working on coming up with another method of verification’,” she recalled. “He also had thrown in something about [requiring] a driver’s license, which didn’t sound like a good solution to me.”Continue reading →

The U.S. Federal Trade Commission (FTC) today said it tracked a nearly 50 percent increase in identity theft complaints in 2015, and that by far the biggest contributor to that spike was tax refund fraud. The announcement coincided with the debut of a beefed up FTC Web site aimed at making it easier for consumers to report and recover from all forms of ID theft.

In kicking off “Tax Identity Theft Awareness Week,” FTC released new stats showing that the agency received more than 490,000 identity theft complaints last year, a 47 percent increase over 2014. In a conference call with the news media, FTC Chairwoman Edith Ramirez called tax refund fraud “the largest and fastest growing ID theft category” that the commission tracks.

Tax refund fraud contributed mightily to a big spike in ID theft complaints to the FTC in 2015. Image: FTC

Those numbers roughly coincide with data released by the Internal Revenue Service (IRS), which also shows a major increase in tax-related identity theft in 2015.

Incidence of tax-related ID theft as of Sept. 2015. Source: IRS.

Ramirez was speaking to reporters to get the word out about the agency’s new and improved online resource, identitytheft.gov, which aims to streamline the process of reporting various forms of identity theft to the FTC, the IRS, the credit bureaus and to state and local officials.

“The upgraded site, which is mobile and tablet accessible, offers an array of easy-to-use tools, that enables identity theft victims to create the documents they need to alert police, the main credit bureaus and the IRS among others,” Ramirez said. “Identity theft victims can now go online and get a free, personalized identity theft recovery plan.”

Ramirez added that the agency’s site does not collect sensitive data — such as drivers license or Social Security numbers. The areas where that information is required are left blank in the forms that get produced when consumers finish stepping through the process of filing an ID theft complaint (consumers are instructed to “fill these items in by hand, after you print it out”).

The FTC chief also said the agency is working with the credit bureaus to further streamline the process of reporting fraud. She declined to be specific about what that might entail, but the new and improved identitytheft.gov site is still far from automated. For example, the “recovery plan” produced when consumers file a report merely lists the phone numbers and includes Web site links for the major credit bureaus that consumers can use to place fraud alerts or file a security freeze.

The “My Recovery Plan” produced when I filed a test report claiming the worst possible scenario of ID theft that I could think up. The FTC kindly requests that consumers not file false reports (I had their PR person remove this entry after filing it).

Nevertheless, I was encouraged to see the FTC urging consumers to request a security freeze on their credit file, even if this was the last option listed on the recovery plan that I was issued and the agency’s site appears to do little to help consumers actually file security freezes.

I’m also glad to see the Commission’s site employ multi-factor authentication for consumers who wish to receive a recovery plan in addition to filing an ID theft report with the FTC. Those who request a plan are asked to provide an email address, pick a complex password, and input a one-time code that is sent via text message or automated phone call. Continue reading →

In March 2015, KrebsOnSecurity broke the news that identity thieves engaged in filing fraudulent tax refund requests with the Internal Revenue Service (IRS) were using the IRS’s own Web site to obtain taxpayer data needed to complete the phony requests. Today, IRS Commissioner John Koskinen acknowledged that crooks used this feature to pull sensitive data on more than 100,000 taxpayers this year.

That March story — Sign Up at IRS.gov Before Crooks Do It For You — tracked the nightmarish story of Michael Kasper, one of millions of Americans victimized by tax refund fraud each year. When Kasper tried to get a transcript of the fraudulent return using the “Get Transcript” function on IRS.gov, he learned that someone had already registered through the IRS’s site using his Social Security number and an unknown email address.

Koskinen was quoted today in an Associated Press story saying the IRS was alerted to the thieves when technicians noticed an increase in the number of taxpayers seeking transcripts. The story noted that the IRS said they targeted the system from February to mid-May, and that the service has been temporarily shut down. Prior to that shutdown, the IRS estimates that thieves used the data to steal up to $50 million in fraudulent refunds.

“In all, about 200,000 attempts were made from questionable email domains, with more than 100,000 of those attempts successfully clearing authentication hurdles,” the IRS said in a statement. “During this filing season, taxpayers successfully and safely downloaded a total of approximately 23 million transcripts.” Continue reading →

Some of the most frank and useful information about how to fight fraud comes directly from the mouths of the crooks themselves. Online cybercrime forums play a critical role here, allowing thieves to compare notes about how to evade new security roadblocks and steer clear of fraud tripwires. And few topics so reliably generate discussion on crime forums around this time of year as tax return fraud, as we’ll see in the conversations highlighted in this post.

One outspoken and unrepentant tax fraudster — a ne’er-do-well using the screen name “Peleus” — reported that he had far more luck filing phony returns at the state level last year. Peleus posted the following experience to a popular fraud forum in February 2014:

“Just wanted to share a bit of my results to see if everyone is doing so bad or it just me…Federal this year has been a pain in the ass. I have about 35 applications made for federal with only 2 paid refunds…I started early in January (15-20) on TT [TurboTax] and HR [H&R Block] and made about 35 applications on Federal and State..My stats are as follows:

State: 35 apps – 15 approved (average per return $1600). State works just as great as last year, their approval rate is nearly 50% and processing time no more than 10 – 12 days.

I know that the IRS has new check filters this year but federals suck big time this year, i only got 2 refunds approved from 35 applications …all my federals are between $2300 – $2600 which is the average refund amount in the US so i wouldn’t raise any flags…I also put a small yearly salary like 25-30k….All this precautions and my results still suck big time compared to last year when i had like 30%- 35% approval rate …what the fuck changed this year? Do they check the EIN from last year’s return so you need his real employer information?”

A seasoned tax return fraudster discusses strategy.

Several seasoned members of this fraud forum responded that the IRS had indeed become more strict in validating whether the W2 information supplied by the filer had the proper Employer Identification Number (EIN), a unique tax ID number assigned to each company. The fraudsters then proceeded to discuss various ways to mine social networking sites like LinkedIn for victims’ employer information.

GET YER EINs HERE

A sidebar is probably in order here. EINs are not exactly state secrets. Public companies publish their EINs on the first page of their annual 10-K filings with the Securities and Exchange Commission. Still, EINs for millions of small companies here in the United States are not so easy to find, and many small business owners probably treat this information as confidential.

Nevertheless, a number of organizations specialize in selling access to EINs. One of the biggest is Dun & Bradstreet, which, as I detailed in a 2013 exposé, Data Broker Giants Hacked by ID Theft Service, was compromised for six months by a service selling Social Security numbers and other data to identity thieves like Peleus.

Last year, I heard from a source close to the investigation into the Dun & Bradstreet breach who said the thieves responsible made off with more than six million EINs. In December 2014, I asked Dun &Bradstreet about the veracity of this claim, and received a blanket statement that did not address the six million figure, but stressed that EINs are not personally identifiable information and are available to the public. Continue reading →

An unusual number of physicians in several U.S. states are just finding out that they’ve been victimized by tax return fraud this year, KrebsOnSecurity has learned. An apparent spike in tax fraud cases against medical professionals is fueling speculation that the crimes may have been prompted by a data breach at some type of national organization that certifies or provides credentials for physicians.

Scott Colby, executive vice president of the New Hampshire Medical Society, said he started hearing from physicians in his state about a week ago, when doctors who were just filing their tax returns began receiving notices from the Internal Revenue Service that someone had already filed their taxes and claimed a large refund.

So far, Colby has heard from 111 doctors, physician assistants and nurse practitioners in New Hampshire who have been victims of tax fraud this year.

“I’ve been here four years and this is the first time this issue has come across my desk,” Colby said.

In this increasingly common crime, thieves steal or purchase Social Security numbers and other data on consumers, and then electronically file fraudulent tax returns claiming a large refund. The thieves instruct the IRS to send the refund to a bank account that is tied to a prepaid debit card, which the fraudster can then use to withdraw cash at an ATM (for more on how this works, see last week’s story, Crimeware Helps File Fraudulent Tax Returns).

Unlike the scam I wrote about last week — which involved the theft of credentials to third-party payroll and HR providers that are then used to pull W2 records and file bogus tax returns on all company employees — the tax fraud being perpetrated against the physicians Colby is tracking is more selective.

“We’ve done a broadcast to all of the hospital systems in the state, and I have yet to receive one [victim] name from a non-clinician,” Colby said. “And you would think if it was an HR or payroll issue that at least a couple of administrative, non-clinical folks would have been in the mix, but that is not the case.”

AN EPIDEMIC OF TAX FRAUD?

Colby said he’s heard similar reports from other states, including Arizona, Connecticut, Indiana, Maine, Michigan, North Carolina and Vermont.

Elaine Ellis Stone, director of communications at the North Carolina Medical Society, said her organization has been contacted by more than 100 individual doctors and medical practice managers complaining about tax fraud committed in the names of their doctors and other medical staff. Continue reading →